In a volatile stock market, Microsoft could be your best bet, says one trading expert.
While Microsoft shares have gained nearly 27% this year, with the company's market cap topping $1 trillion after its most recent earnings report, any dip presents an opportunity to buy the software play, according to Todd Gordon, founder of TradingAnalysis.com.
"I like the look of Microsoft here," Gordon said Thursday on CNBC's "Trading Nation." "The stock gapped up on a strong earnings report. We've since closed that gap in this little bit of market volatility. I think this pullback is an opportunity to get long."
A stock closing its gap — which occurs when a given security opens well above or below its closing price — is typically seen by technical analysts as a bullish sign. Gordon also noted that Microsoft's 50-day exponential moving average has provided key support during the stock's rise this year.
"We're seeing relative strength here in Microsoft," he said. "I think the overall market's beginning to stabilize, and it looks like we should begin to push higher."
Gordon added that Microsoft's options were cheap, which enabled him to put on a bullish call spread, an options trade that limits losses by creating a strike-price range. Using July monthly options, Gordon bought a $130 call for $4.35 and sold a $140 call for 97 cents, a net cost of $341.
"That's the max loss that you have in this trade," he explained, adding that the maximum profit was "roughly $660. ... Now, I'm going to manage this trade at about 50%. So if the $3.40 premium that I want to pay now gets cut in half down to, say, $1.70, [the] trade is probably not working."
In that unique situation, Gordon's advice was simple: "Cut the trade, move on."
"Remember, that debit spread is a fixed investment," Gordon said. "We're going to risk half of what we paid, so kind of price that in in terms of percent risk to your overall portfolio or account or whatever you're trading. Be sure to position-size it correctly."
Shares of Microsoft were fractionally higher Friday afternoon, trading at $129.18.
